Dewey Leaders Seek Dismissal of Criminal Charges

Dewey’s former chairman, Steven Davis, second from right, and former finance chief, Joel Sanders, third from right, arriving in court in March.

Reuters

The implosion of New York law firm Dewey & LeBoeuf LLP was not a result of intentional wrongdoing by firm management, say lawyers for three former Dewey executives seeking to dismiss criminal charges against their clients.

In court filings, lawyers for former Dewey chairman Steven Davis, former chief financial officer Joel Sanders and former executive director Stephen DiCarmine said their clients lacked both the financial know-how and the intent to perpetrate the alleged accounting fraud that led to their indictment.

The papers, filed on Friday in state supreme court in Manhattan, provide the first glimpse of a potential defense strategy for the three leaders, who Manhattan prosecutors say cooked the firm’s books in a scheme to conceal its deteriorating financial condition.

[T]he firm’s distress was caused by a combination of The Great Recession, the voracious greed of some of the firm’s partners, the decisions of several key partners to defect, and the publicity engendered by the District Attorney’s investigation that torpedoed an impending merger with another law firm, as well as D&L’s ongoing negotiations with its lenders to renew its credit facility.

By the time Dewey & LeBoeuf sought Chapter 11 protection in May 2012 the firm owed at least $315 million to banks, bondholders and other creditors.

In March of this year, a grand jury indicted Messrs. Davis, Sanders, DiCarmine and a lower-level employee, Zachary Warren, after a lengthy investigation by the office of Manhattan District Attorney Cyrus Vance and the Federal Bureau of Investigation. Prosecutors accused the group of inflating revenue and using accounting tricks to hide a mounting cash-flow shortfall. All four pleaded not guilty.

In the filings, defense lawyers said there was no evidence that the three firm leaders intended to “permanently deprive” bank lenders and bondholders who invested in a $150 million private placement of their property or for Dewey to renege on its commitments. Interest payments on the bond issue had been made in a timely fashion, the papers said, and drawdowns against the firm’s $100 million revolving credit line in 2012 were made “at the direction of several partners on the firm’s Operations Committee, and against the advice of Mr. Sanders, and despite the concerns of Mr. Davis and objections raised by Mr. DiCarmine.”

Separate papers were submitted on behalf of Mr. Warren, a young lawyer who worked as a client-relations manager for Dewey before attending law school and who has asked to be tried separately from the firm executives.

In the filings, his lawyers asked the judge to dismiss all counts against Mr. Warren. He was merely present at meetings where the alleged accounting fraud was discussed, they said, and did not have access to the accounting system or the accounting expertise to understand what the adjustments entailed.

A spokeswoman for the District Attorney’s office declined to comment on the filings. Prosecutors are expected to file their response to the motions next month.

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